HPQ, DELL: January-Qtr Estimates Need to Come Down, Says Mizuho

By Tiernan Ray

Mizuho Securities’s Abhey Lamba this afternoon continues the drumbeat of negative news for PC stocks, warning that his “checks” suggest the personal computer market “remains very weak due to consumer slowdown, cannibalization by tablets and high price points.”

Lamba, who rates Hewlett-Packard (HPQ) shares Underperform, and rates Dell (DELL) Neutral, thinks estimates for both companies can go lower as a consequence this quarter (Dell reports a January-ending fiscal Q4 while HP reports a January ending Q1):

We are expecting the PC market to be roughly flat sequentially, which implies year-over year decline of 8% in C4Q12 and a fall of 4% for 2012. We believe tablets will continue to gain significant mindshare among consumers whereby the market is favoring Apple at the higher end and lower priced Android devices at the lower end. Windows 8 based tablets lack significant OEM support and Microsoft’s distribution of Surface remains highly limited. As such, Windows will likely occupy the third spot among platform vendors in the space [...] We believe consensus estimates for Dell and HP have yet to fully account for the slowdown. For HP’s January quarter, PC revenue estimates could move lower by ~$1B as consensus is only looking for a 5% Y/Y decline whereas we expect the company to post nearly 20% fall in PC sales. For Dell, January estimates seem reasonable, but the FY14 PC forecast could move lower by ~$3B. We believe downside to estimates will weigh on their stock performance. While Dell has some valuation support, HP is likely to underperform due continued internal and external challenges.

Lamba thinks Apple‘s (AAPL) iPad will continue to contribute to that cannibalization of PCs by tablets, but he also warns of potential downside for iPad estimates this quarter given that the newer mini model is taking most of the demand and is supply-constrained relative to the full-size model:

Although iPad remains the market leader in the tablet space and it continues tosolidify its number one position, the company’s higher end tablet is being increasingly cannibalized by the lower end iPad mini. In our view, the iPad mini offers almost the same value as the larger iPad but is available for a significant discount, which is a big driver in the current macro environment and it also speaks to the price elasticity of the tablet market. As a result, we are also seeing an increasing demand for sub $200 tablets where Android is gaining share [...] Regarding iPad estimates, we believe current consensus of $11 billion for the December quarter (up 24% yearover-year) is too high. Assuming an ASP of about $450 (down 25% year-over-year), consensus iPad shipment forecast is around 25 million, which seems quite high giventhe lackluster demand being experienced by larger iPads. We are modeling iPad units to be around 20 million and ASP around $475. We believe the company is likely to deliver iPad revenues slightly below $10 billion for the quarter.

Shares of Hewlett-Packard are up 6 cents, or 0.6%, at $13.89, while shares of Dell are down 8 cents, or 0.7%, at $10.41. The stocks have had a very good week, however, despite an intense flow of negative commentary about the PC market. HP shares are up 7% since last Friday’s close, while Dell shares are up almost 8%.

Shares of Apple are off $15.16, or almost 3%, at $532.08, and are down almost 9% for the week.

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There are 11 comments

DECEMBER 7, 2012 3:52 P.M.

flying finn wrote:

Apple needs to merge with Xerox, HP and Pitney Bowes. To form a mighty alliance to ward off Asian invaders.

DECEMBER 7, 2012 4:00 P.M.

Jay wrote:

Tim Cook can go F himself!

DECEMBER 7, 2012 4:02 P.M.

Gringo Honasan wrote:

Thank you for your convincing insight but you are too myopic.
your qriteup suggest that your findings is solely limited to the US market
where Apple is king. Step aside the pacific ocean and you will not get that
sense in the air. FYI, there is another half a billion internauts coming
from asia where these places like Indua, Thailand, Cbodia and Hong Kong
recently upgraded their internet reach. Thus my friend the pc business wont
stay flat as your analysis state.
2013 I believe will be the overhaul year where companies like
HP and Dell will offer more cheaper and faster hardware coupled with
the availability of the internet in such an exciting market will tilt the
pllayfield in favor of the pc. Why? Because a pc is much more affordable
fir each household who can share the new experience unlike tablets
or smartphones still considered a luxury. That I believe will open the market
for the tablet in the later part of 2013. This wave or ahift will again make it difficult
For Apple ti penetrate because of their high end hardware with an attached
high price tag.
So what Im saying us - look at the bigger picture. Dont make Apple your benchmark
because it doesnt represent the world or the average tech market.
Merry Christmas to you and to your family!

DECEMBER 7, 2012 4:07 P.M.

Wan wrote:

Tim Cook and the Death Cross. Sounds like
a new Harry Potter movie.

DECEMBER 7, 2012 4:17 P.M.

Jon wrote:

I love how all the analysts in the land pushed Apple, then the stock dropped 20%. All the analysts are against HP and Dell, so, heck, they'll probably double in the next 12 months.

Analysts seem to cater largely to pop culture, and are always two or more steps behind the trend.

DECEMBER 7, 2012 5:42 P.M.

jay wrote:

some one use ny name Jay and say bad thing about Tim Cook. It iz not his fault. Aaple hzs reach the ceiling and now it is time to bottom.

DECEMBER 7, 2012 8:33 P.M.

Haswell wrote:

Most of the PC compatible hybrids and convertible Win8 tablets have not reached the enterprise market yet. Win RT is out on the Surface and that is not backward compatible with Windows7. The HP enterprise focused Elitepad is not due out till Jan 2013. Win8 Pro is mostly running on the Clovertrail (Atom) chip. The new Intel Haswell chip should help when it comes out in H1 2013. The PC's may be losing some ground to tablets but the PC makers are now into tablets and hybrids. The enterprise will probably adopt these because of their Windows compatibility. The PC replacement cycle to replace Win XP will probably migrate to the hybrids with Haswell (not Clovertrail).

DECEMBER 7, 2012 8:49 P.M.

Gates wrote:

Apple lost the lead in the personal computer market when it lost the enterprise business to Microsoft. Will history repeat itself with the tablet market should the enterprise tablet market be won by Microsoft? Microsoft's huge presence in the enterprise already gives it a big advantage there. Maybe it is a good thing most of Apples revenues come from the iphone.

DECEMBER 7, 2012 10:34 P.M.

Anonymous wrote:

Anybody here actually giving or getting an HPQ or Dell product for the gift giving season? That's what I thought. So why would Apple want to merge...

People are bashing Apple because they're plainly mad. Success does that. After all this time there's no other rational explaination. Ultimately it won't change what matters. Betting against Apple is not a good idea. Don't fool yourself otherwise.

DECEMBER 8, 2012 12:41 A.M.

anonymous wrote:

its the other way around. don't be bother with their analysis just look at the chart HP is now moving UP

DECEMBER 10, 2012 3:46 P.M.

dm wrote:

I love my iphone, but I will never give up my HP laptop. All of my family members have Hp laptops, and two of them have ipods. They both use the Hp laptop for school work, facebook, etc. Iphone, Ipods are fun, but they are not going to replace laptops. Tablets are a cool toy. Even the reading tablets will not replace laptops. I think most avid readers like the touch and scent of a new book.
HP laptops are awesome. One of my kids has had theirs for 5 years and it has taken all the abuse of middle school and now two years of high school. Works like a charm.......

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.